How to Calculate Estimated Taxes

The two methods

The IRS gives you two ways to calculate your quarterly payments. Use whichever results in the lower payment — as long as you meet the threshold, you won't be penalized.

Method 1: Safe Harbor (recommended)

Pay 100% of last year's total tax liability divided across four equal quarterly payments. If your adjusted gross income last year exceeded $150,000, pay 110% instead.

This is the simplest approach because you already know the number — it's on your prior year's tax return (Form 1040, line 24 for total tax). Divide by four. Pay that amount each quarter. Done.

The advantage: even if you earn significantly more this year, you won't owe any underpayment penalty as long as you've paid the safe harbor amount.

Method 2: 90% of current year's estimated tax

Estimate your total income for the current year, calculate your expected tax liability, and pay 90% of that amount across four quarters. This works well if your income is relatively predictable and similar to prior years.

This method requires more judgment — you're estimating future income — but it can result in lower payments if you expect to earn less this year than last.

Step-by-step calculation

Step 1: Find your prior year total tax. Look at Form 1040, line 24 (or line 15 on older forms). This is your baseline for the safe harbor method.

Step 2: Divide by four. This is your base quarterly payment.

Step 3: If your prior year AGI exceeded $150,000 (or $75,000 if married filing separately), multiply the total by 1.10 before dividing by four.

Step 4: Pay that amount by each quarterly deadline: April 15, June 15, September 15, and January 15.

Example

Maria is a freelance designer. Last year, her Form 1040 showed a total tax of $12,400. Her AGI was under $150,000. Her safe harbor quarterly payment is $12,400 ÷ 4 = $3,100 per quarter.

Even if Maria earns more this year and ends up owing $15,000, she won't face an underpayment penalty — she covered her safe harbor amount in full.

Use our calculator

Our estimated tax calculator walks you through this process automatically. Enter a few numbers and it gives you the exact quarterly payment amount for your situation.

Frequently asked questions

You pay your tax in four installments during the year instead of having it withheld from a paycheck. Each payment covers roughly a quarter of what you expect to owe, and the return in April settles the difference.

The simplest penalty-proof answer is 25% of last year's total tax, or 27.5% if your prior-year income was over $150,000. Our calculator does that math from one number off your last return.

You get it back as a refund when you file. Many freelancers deliberately overpay a little to avoid penalties, treating it as forced savings rather than lost money.